As COVID Decimates State Revenues Tennessee Franchise Tax Comes for out of State Performers

Most people do not realize this, touring bands end up paying income taxes in multiple states. It tends to be the high population states in the West and Northeast. Think California and New York. This makes sense in some ways as the income tax is based on revenue you make in these states. Big states big revenue. It’s a pain to file multiple state returns but at least there is a reasonable rationale.

A franchise tax is different and is not usually based on a businesses income. It is essentially a flat fee tax on the corporate or LLC entity doing business in that state. The idea is that a business based in that state should pay for the services the state provides. These franchise taxes generally have minimum fees between $150-$800. Bands that use a corporate or LLC structure pay these taxes in their home state because they have a “nexus” in that state. A nexus generally means you have some regular place of business in that state. However some states try to apply the franchise tax even when an out of state business or band has no nexus in that state. However it is exceedingly rare. At least until recently…

Over the last couple months I’ve been hearing anecdotal stories about bands suddenly getting tax bills from the State of Tennessee. Odd. The music state? Aggressively taxing musicians? I didn’t think much of this as, it’s pretty common for bands to not realize they owe sales or income tax in states in which they perform frequently.

But last week I received a surprising notice from the State of Tennessee. A retroactive assessment for 7 years of Tennessee franchise tax. As far as I can tell we have no nexus in that state. I have not heard back from the Tennessee Department of Revenue, but apparently the State of Tennessee considers us to be subject to their franchise tax (now?) because we played a single show in the state in each of these years. Wow. This is ridiculous. Imagine if every state you played in required you to file taxes and pay $150-500 in franchise taxes for the privilege of playing a single show in the state?

Further, this retroactive assessment (including penalties and interest) comes at a time when most states are facing tax revenue shortfalls. When states and local governments face revenue shortfalls they have a bad habit of enacting dubious “revenue enhancement” schemes. Often these amount to badgering businesses and taxpayers into paying taxes and fees they would not normally be assessed. I have no evidence this is what is happening here, but something has changed with way my band is being treated by Tennessee tax authorities. And it is apparently happening to other bands.

WTF? I won’t be rushing back to Tennessee to play shows, record albums or even co-write songs until I have some clarity on the tax situation. I suggest other bands also exercise caution.

One last thought: The federal Music Licensing Collective will come online next year. The MLC is based in Tennessee. Does this mean every songwriter and publisher will now have to pay the Tennessee Franchise Tax? Hardly seems fair but it’s possible.

Black Box Hunting: The Songwriters Guild/Society of Composers & Lyricists/Music Creators North America’s Ex Parte Letter Stands Up for Transparency

[Editor T says: Remember when songwriters were promised that the Music Modernization Act was going to solve all your problems—AND give you a set of steak knives? Remember? Never needs ironing? And doubles on sax? One big feature was digital music services paying up to the Mechanical Licensing Collective for matching the entire black box from “inception” meaning all the money a service ever held that their data vendors couldn’t match and weren’t paid to try very hard, especially Spotify aka “defendant”. Who was that data vendor who couldn’t match? HFA. And who is the MLC’s data vendor? HFA. So the last couple weeks the insiders have been back-tracking behind closed doors at the Copyright Office on how–or if–that black box will be paid to songwriters. The only way you’d ever know this was happening is if you were paying very close attention to the Copyright Office “ex parte” letters. (sign up for email alerts there.) The Songwriters Guild/SCL/MCNA group is the songwriter’s junkyard dog with their teeth sunk in the tuchus of the insiders. We’ll be posting a selection of these recent “ex parte” letters which publicly document private conferences held by the Copyright Office with “stakeholders”. “Everyone’s a winner, bargains galore….the large print giveth and the small print taketh away” as Tom Waits said.]

EX PARTE MEETING SUMMARY WITH

THE UNITED STATES COPYIGHT OFFICE

Docket Number 2020-12

November 18, 2020

Re: Summary of the November 13, 2020 Ex-Parte Meeting Between the United States Copyright Office on behalf of the following independent, US-based music creator organizations: the Songwriters Guild of America, Inc. (SGA), the Society of Composers & Lyricists (SCL), and Music Creators North America, Inc. (MCNA)

On Friday, November 13, 2020, an ex-parte video-conference meeting was conducted by the United States Copyright Office (USCO) with multiple interested parties concerning rulemakings in connection with Doc. No. 2020-12. This summary is submitted on behalf of SGA, SCL and MCNA (together, the “Independent Music Creator Organizations” or “IMCOs”), all of which were represented at the meeting. Attending for SGA were President Rick Carnes, outside counsel Charles Sanders, and outside legislative consultant Marla Grossman of the American Continental Group (ACG). Attending for SCL was President Ashley Irwin. Attending for MCNA was President Eddie Schwartz. The meeting was chaired on behalf of the USCO delegation by its General Counsel, Regan Smith.

Individuals representing the IMCOs began by respectfully stressing, as they had in their ex parte tele-conference with the USCO on September 11, 2020, the bedrock principle that independent music creators speak for themselves on all issues related to their rights and interests, and that no other music community groups have the right or authority to claim otherwise. Specifically, the IMCOs rejected the assertion by some music publisher representatives (backed by at least one of their affiliated songwriter groups) that the USCO’s oversight and rulemaking authority concerning matters related to 2020-12 should be viewed as being narrowly limited.

The IMCOs have stressed on multiple occasions through their USCO Comments a strong belief that Congress, by its very construction of the Music Modernization Act (MMA), intends the Office to have broad and expansive authority to oversee and guide the implementation of the MMA by the Mechanical Licensing Collective (MLC). That is especially so in regard to ensuring transparency, reliability and fairness regarding the safeguarding of music creator rights, the class of persons for whom the MMA was most clearly enacted to protect pursuant to Article I Section 8 of the US Constitution.

The main issue of concern addressed at the November 13, 2020 meeting was the oversight and disposition of accrued, unmatched royalties collected and held by Digital Music Providers and subsequently distributed pursuant to private negotiated agreements with music publishers. It is believed by the IMCOs that as regards those agreements and royalties, some or all of the parties thereto were very likely aware at the time of negotiation and execution, that (i) such confidential agreements and payments concerned royalties accrued from the unauthorized reproduction or distribution of musical works owned by unrelated third parties; (ii) little to no effort had been made to properly identify rightful ownership, and (iii) such accruals might soon be subject to payment rules under the MMA that would require strictly delineated sharing of such “permanently” unmatched royalties with music creators by music publishers (including a minimum floor of 50%) after the conducting by the MLC of bona fide searches for rightful owners.

Further assertions were made by the IMCOs at the meeting that after three years of discussions, still no informed estimate had yet been made by Digital Music Providers of the aggregate amounts of unmatched royalties both still being held and already distributed. Thereafter, one knowledgeable representative of Digital Music Providers estimated that while there remain hundreds of millions of dollars in accrued, unmatched royalties in the possession of the Digital Music Providers, tens of millions of dollars in accrued unmatched royalties were indeed turned over directly to music publishers pursuant to the terms of the confidential, private negotiated agreements.

As was also made clear during the meeting, the IMCOs have no direct information as to the content of such private negotiated agreements, and no direct information as to what became of the unmatched royalties such music publishers received.

Several music publishers have claimed in ex parte letters to the USCO that they indeed shared such unmatched royalties with their affiliated music creators, but no specific information has been provided as to the methodology and details of such sharing, including whether the principles and and guarantees eventually set forth in the MMA as enacted were applied.1 Moreover as the IMCOs reported at the meeting, an informal and ongoing process of canvassing creators currently being conducted by each MCNA member organization have yet to confirm a single instance in which a songwriter or composer received a royalty statement indicating that portions of such accrued, unmatched royalties were included (though they may have been) and on what basis.

As the IMCOs asserted at the meeting, were such unmatched royalties paid to songwriters and composers by music publishers on terms resembling the MMA rules concerning music creator protections (as either drafted or eventually enacted), it seems counter-intuitive that that no line item would appear anywhere in accounting statements indicating the source of such payments, not only as a matter of sound accounting practice, but of earned good will. No other music creator groups present at the meeting challenged or contradicted these ongoing findings or assertions. In any event, as noted, it seems that the burden of demonstrating the details of such payments is more properly placed on the music publishers who claim to have made them, which could be as simple as each publisher disclosing a properly predicated and binding assertion that the payments were made, how many were made, what was the aggregate payment, and how was each songwriter’s share determined.2

Under such circumstances as they currently exist, as SGA President Rick Carnes pointed out at the meeting, asking interested parties to render opinions on the minutiae of proposed rules concerning the disposition of accrued unmatched royalties –with only some parties having an understanding of how the private agreements operated, who got paid, who didn’t, and why– is a difficult position in which to place the IMCOs and other parties with important, related interests.

As Mr. Carnes pointed out, the issues of (i) how to protect the rights of those music creators and copyright owners who did not participate in the privately negotiated agreements by ensuring that there is an opportunity to actually match those already-distributed royalties to their proper owners and to effect the prompt payment of such sums, (ii) how to balance accounts once such proper identifications have been made, while also ensuring that affiliated music creators have been properly paid by their music publishers concerning royalties collected under the private negotiated agreements that otherwise would have flowed through the MLC and been explicitly subject to MMA distribution requirements, (iii) how to address demands of Digital Music Providers that they not be made to pay twice for the same unmatched uses, and (iv) how to ensure that such private negotiated agreements are not utilized in the future in attempts to override the provisions of the MMA, all need to be addressed prior to a proper analysis of how most effectively to move forward.3

Thus, as was stated at the meeting, while the IMCOs agree the MMA makes clear that ALL accrued unmatched royalties for unauthorized reproductions and distributions dating back to inception must be turned over to the MLC by Digital Music Providers, and that the term “generally accepted accounting principles” used in the Act in no way provides an exception to that unambiguous provision, the crucial questions enumerated above also need to be immediately addressed as matters of fairness and transparency mandated by the Act.

As to the very important issue of retroactive effect of the MMA provisions concerning guaranteed music creator participation in the distribution of permanently unmatched royalties at or above the fifty percent level, the IMCOs adamantly believe, as stated at the meeting, that it is wholly illogical for any interested party to argue that Congress intended as it did to require that all accrued, unmatched royalties be rendered to the MLC by Digital Music Providers back to each service’s date of inception, but that the songwriter, composer, transparency and good faith protections guaranteed by the Act would not otherwise be applicable in the event of premature disgorgement of unmatched royalties by Digital Music Providers to music publishers pursuant to prior agreements. This is an issue that certainly requires further attention, and calls for more comprehensive discussion than for which there was time at the meeting.

As was noted several times by various speakers, the Chair of the Senate Judiciary has warned that absent a fair and transparent resolution of these complex issues, the MMA may become a magnet for litigation, the very opposite effect that it was intended to achieve. The IMCOs wholeheartedly agree, and stand ready to assist the USCO in taking all reasonable measures to achieve the transparency, fairness and robust oversight that the legislation demands in order to avoid that undesirable result.

To reiterate in closing, as the IMCOs tried to make clear at the meeting, voluntary disclosure of the specific details of the privately negotiated agreements, redacted to protect legitimate privacy and antitrust concerns, is an important prerequisite to achieving those goals. The IMCOs further repeat their stated beliefs that the USCO has the singular ability if not to compel, at least to facilitate such disclosures in a timely manner, and respectfully urge it to do so.

Further comments of SGA, SCL and MCNA will be forthcoming in regard to the proposed rulemaking by next week’s deadline. As stated at the conclusion of the meeting, however, the IMCOs believe that all parties would benefit by a brief extension for the submissions of such comments until the Monday after the Thanksgiving holiday in order to allow for further discussions among the parties. The IMCOs acknowledge a certain lack of unified support for this suggestion at the meeting, and active opposition by at least one music publisher representative, but continue to believe it to be an advisable accommodation. Those parties wishing to abide by the original deadline would always be free to do so, as was explicitly pointed out.

The IMCOs thank the USCO for scheduling the ex parte discussion, and look forward to continuing this constructive dialog.

Respectfully submitted,

Charles J. Sanders
Outside Counsel
Songwriters Guild of America, Inc.

cc: Regan Smith, General Counsel, The United States Copyright Office
Rick Carnes, SGA President
Ashley Irwin, SCL President
Eddie Schwartz, MCNA President

  1. At least one publisher has indicated an alleged willingness to share details of such payments with any writer who makes inquiry as to his or her own works, an unlikely scenario considering that a huge percentage of writers have no knowledge of the private negotiated agreements in the first place, and –to the knowledge of the IMCOs based on informal canvassing– have not been directly informed about them by their publishers. See, e.g., Ex Parte letter from Sony/ATV dated October 28, 2020: “It has been SATV’s practice to explain to our writers who inquire how these royalties are distributed and reflected on their statements.”

2. Likewise, it seems that the burden of demonstrating how much each Digital Music Provider paid to music publishers is more properly placed on the services who claim to have made the payments, which in turn could be as simple as disclosing a properly predicated and binding assertion that the payments were made, how many were made, what was the aggregate payment, and how was each publisher’s share determined. It is anticipated that such details may be forthcoming from Digital Music Providers in their reporting under the MMA, but that remains uncertain.

3 That is especially so in light of the apparent assertions of one or more Digital Music Providers that they may forego the limited safe harbor provisions provided by the MMA by not turning over to the MLC the full amount of accrued, unmatched royalties dating back to inception of use, probably under the assumption that the potential running of applicable statutes of limitations will provide the same protections as the safe harbor without payment of the royalties due. The IMCO raised this statute of limitations issue at the meeting, and was gratified that at least one Digital Music Provider representative felt that this was an issue worthy of further discussion, hopefully with the important input of the USCO. See also, related comment of DLC that “…a DMP could make the rational choice to forego the payment of accrued royalties entirely, and save that money to use in defending itself against any infringement suits.” Comments Of Digital Licensee Coordinator, Inc. In Response To Notice Of Proposed Rulemaking , Docket 2020-12, Document COLC 2020-0011-0008 (Aug. 17, 2020) at 4.

Guest Post: The False Double Payment Bottom of the MMA Black Box

By Chris Castle

[T-Editor says: This post first appeared on MusicTechPolicy]

The Dog Who Didn’t Bark On the Mirror

There seems to be some concern about pre-Music Modernization Act confidential lump sum payments of accrued black box monies under direct licenses or settlement agreements.  Services are promoting the idea that these payments must be deducted from the cumulative black box payments required for services to get the benefit of the limitation on liability and reach back safe harbor. 

That limitation on liability, of course, comes with a condition that the services use “good faith, commercially reasonable efforts” to match works to copyright owners.  Uses that remain unmatched are then turned over to the Mechanical Licensing Collective for matching and distribution.

The Digital Music Providers [“DMPs”] are now promoting the payment of black box as an option for which they can elect to take the limitation on liability.   The Digital Licensee Coordinator [representing the DMPs] tells us “If the regulations make it less likely that a DMP will be able to rely on that liability protection when it needs iti.e., if it increases the risk that a court would deem a DMP to not have complied with the requirements in section 115(d)(10)—a DMP could make the rational choice to forego the payment of accrued royalties entirely, and save that money to use in defending itself against any infringement suits.”

The SOCAN company MediaNet tells us that absent some aggressive concessions by the Congress to essentially re-write the Copyright Act in their favor, “MediaNet may decline to take advantage of the limitation on liability, which may deprive copyright owners of additional accrued royalties.”  

The DMPs have somehow managed to convince themselves that payments of unallocated sums under settlement agreements (which they weren’t required to match before the MMA) and payments of unallocated sums under the MMA’s black box (which they are required to match under the MMA) are a “double payment.”  While easy to say, “double payment” makes it sound like someone paid twice for the same thing.  That would be bad if it were true.  

But it’s not.

Betting and Strangers

Certain DMPs and certain publishers made settlement agreements of prior unpaid royalties.  We don’t know exactly what gave rise to those agreements but we do know that they covered unmatched (and therefore unallocated) black box payments.  Because the payments were unmatched, they were necessarily a lump sum payment to the participating publisher (although the amounts may have been reduced by commissions for administering the lump sum distributions under so-far confidential settlements).  

At the time of the settlement, nobody did the work to match the unallocated.  This is important for at least two reasons:  Because the works were not matched, the lump sum couldn’t have been allocated to specific works owned by strangers to the settlement.   Therefore there was no initial payment to those strangers, the strangers were not represented in the transaction, the strangers did not authorize the settlement of their claims, and there was no legal basis for the parties to settle ripe but inchoate claims the strangers could have made had they been asked.

The lump sum settlement was evidently based on market share of the then-unallocated black box.  Market share payments would be a typical way to avoid doing the work of matching.  It’s like a DMP saying to a publisher “I’ll make you a bet—if you have 10% market share of the known knowns, I’ll bet that the most I owe you for then known unknowns is 10% of the cash value of the unallocated black box.  Particularly if you are the first payment.”

Why not do the matching at the time?  We’ll come back to that.  

Betting Secrecy

The settling publisher feels they made a good bet and accepts the terms.  The DSP adds one additional post closing condition—the bet must be secret.  The settling publisher will likely voluntarily distribute the monies to their own songwriters on a ratio of earnings (similar to market share), so it can’t be entirely secret.  And there are no secrets in the music business.  But given these realities, why must the bet be secret?  

To keep the strangers to the bet in the dark.

If the bet is announced, strangers to the bet may decide they need to look into how much they are owed.  They may not be willing to take a bet.  They may want what the statute contemplates—good faith commercially reasonable efforts to actually match.

After the DMPs negotiated their safe harbor in the MMA—remembering that the black box payment was never sold to songwriters as optional—it became apparent that all the strangers were now going to be paid for all the uses that were never matched as a part of the lump sum bet.  All the DMPs efforts to keep the strangers in the dark were going to be exposed.  And exposed all at once.  To what end is this secrecy?  Probably for the same reason the DMPs have never posted the unmatched (unlike Royalties Reunited or the AFM-SAG/AFTRA Trust Funds.

Who’s At Fault?

The settling publishers have done absolutely nothing wrong here.  They could have pressed for matching but chose to take the bet.  Could be high, could be low, but seemed like a good bet at the time.  

Plus, by making the bet, they did not take anything away from strangers.  The DMPs still owed an obligation to the strangers.  The settling publishers did not owe the strangers anything.  

This is why the bet is not a double payment so long as the settling publishers are not claiming any uses that were released and settled, which they are not as far as we can tell.  

If the DMPs made a bad bet, that’s on them.  

The DMPs cannot now reduce a cumulative unmatched black box by the prior bets they made.  And of course, as transactions are matched, the unknown knowns become known knowns and are paid out.  In order to accomplish the purpose of the statute, all the transactions must be reported. 

The MMA “deal” was for cumulative payment of the black box.  If settling publishers end up having matched works in the black box—when the unknown become known—those per-transaction payments can be offset to the extent they were covered by a prior release agreed to by a bettor.

But what they cannot do is simply say I made a bet with these guys, so I’m going to claw that back from what I owe to other people who are strangers to the bet.  That’s not a double payment either to the bettor or the stranger to the bet.

Letter of Misdirection

I also do not understand a conversation about letters of direction in this context.  As known unknowns get matched, the DMP should render a statement.  

If the known unknown becomes a known known, that statement will reflect at a minimum the title, copyright owner and the usage as well as whatever other metadata the regulations require.  The now known knowns will either be payable as matched works or have already been covered by a settlement and release for the corresponding period.

In the former case, the payable royalty will be available.  In the latter case, the royalty will have already been paid as part of the settlement.  If that settlement royalty is included in the corresponding black box, that settled usage would be deducted as already paid, which would have a corresponding reduction in the total amount of accrued but unpaid royalties.  That’s not a letter of direction, that’s an offset against otherwise payable royalties due to matching.  

Alternatively, the settling publisher would not be allowed to make a claim for the periods subject to the release because they have no live claims, assuming a total settlement and release for the corresponding accounting period.

Said another way, whatever transactions are in the pending file stay in the pending file with accrued royalties until claimed.  Prior settlements can only be deducted from the transaction lines in the pending file that are for songs owned or controlled by publishers that fall under a prior settlement.  

Tolling the Statute of Limitations

The way the DMPs have actually harmed the strangers is by keeping quiet on this idea that the reach back safe harbor is optional.  They could have raised this issue during the drafting of MMA and after.  But they waited until they had scared away anyone except Eight Mile Style from suing while in theory statutes of limitations ran out starting on 1/1/18 at a minimum.  They used the MMA as a kind of in terrorem stick.

That is grossly unfair.  This has to be changed so that strangers who didn’t make the bet, who didn’t get the payment, and who were silent with their ripe claims since 1/1/18 are not harmed.  

It’s all fine for the DLC to say they do a cost benefit analysis and elect not to take the safe harbor while allowing strangers to be duped.  They should not be able to fool both Congress and the strangers.  Any statute of limitations running since 1/1/18 should be tolled, perhaps under the Copyright Office emergency powers.

Songwriter Black Box Payments

It is rare for a songwriter to have a royalty claim on unallocated catalog-wide payments such as black box monies absent a specific negotiated deal point.  This is a point of some contention with songwriters, so the Copyright Office should look into it as part of the black box study if nothing else.

This black box issue that keeps coming up may be many things, but a double payment it’s not.  

Chris Castle’s Copyright Office Comments on the Black Box Controversy

Here’s some more MLC news you’ll never read about in the trade press.

Yesterday we posted a shocking revelation from the MediaNet/SOCAN ex parte letter to the Copyright Office: It appears that the digital music services have no intention of complying with the much ballyhooed benefit to the Music Modernization Act–in return for the “reach back” safe harbor that somebody decided to grant the services retroactively, the services would pay over (or you could say “disgorge”) all the unmatched and unpaid mechanical royalties that they were holding, sometimes for years, and always secretly. (Adding insult to injury, MediaNet seems to think that referring to SOCAN’s ownership of MediaNet somehow makes screwing us over into a songwriter-friendly act of good fellowship and felicity. More likely, SOCAN itself knows nothing about it.)

Remember, MediaNet straight up threatened to decline the reach back safe harbor and not pay over the black box. As it turns out, MediaNet’s position is not unique–as Chris Castle identified in his reply comment on the Copyright Office’s black box study, all of the services represented by the DLC made that exact threat to the Copyright Office. As Chris observes, these are not idle threats. They are made by the biggest corporations in commercial history, one of which may be broken up due to antitrust investigations on two continents.

Something must be done and done quickly before the DLC decides to take the blanket license without the limitation on liability for past infringements having successfully scared off anyone who could have sued but didn’t thinking that there was a fixed reach back safe harbor. That seems like it will result in the big guys having paid off the big guys in the NMPA’s secret settlement that was being negotiated simultaneously with the MMA (the NMPA’s umbrella December 17, 2017 Pending and Unmatched Usage Agreement referenced in the MediaNet ex parte letter and talked around in other filings. Remember–the MMA was introduced a few days after the secret NMPA agreement on December 21, 2017 and Wixen Music Publishing felt they had to sue Spotify by December 31, 2017 because of the reach back safe harbor. So everyone except the songwriters–and perhaps most Members of Congress–seems to have known that the fix was in on black box.)

Another fine mess they got us into. Here’s the except from Chris Castle’s reply comment:

The DLC’s Quid Pro Quo Revelation

The concept of a “black box” distribution is a pale mimic of a simple
fact: It is not their money. The fundamental step that Title I excuses
is basic and would solve much of the unmatched problem if Title I did
not exist: Don’t use a work unless you have the rights.

It is a fundamental aspect of copyright licensing and it is not metaphysical.
Yet the message from all negotiators concerned in this process seems
to shelter legitimacy in a complication of dangers to the black box that
come down to another simple fact: Obey and be quick about it or the
law will take your money and give it to someone else.

How much is in the black box? They won’t tell you. From where? Not
your business. From when? Confidential. Is it yours? Already paid it
to someone else before you even knew it was there. And Lord knows
that money once taken incorrectly in the dark is unlikely to be paid
correctly in the light.

Comments by the DLC demonstrate conclusively that addressing the
black box has taken on even greater urgency. The DLC’s Initial
Comment in a related docket is unusually revelatory for a group with a
multitrillion dollar market capitalization that loves them some
protective orders. This passage is particularly breathtaking:

This was the heart of the deal struck by the stakeholders in
crafting the MMA: to provide legal certainty for DMPs, through
a limitation on liability, in exchange for the transfer of accrued
royalties.

If that were “the deal” it is news to me, and I like to think that I’ve
been reading along at home pretty attentively. If I wasn’t aware of
“the deal”, I’m sure I wasn’t alone in my ignorance, but I’m far more
understanding of why the negotiators would have been motivated to
keep “the deal” under wraps if that’s really what it was.

If “the deal” wasn’t kept quiet, someone might have asked why there
was a “deal” when the services were simply agreeing to pay money
they already owed and that they were already obligated to pay for infringements that already occurred. Yet, services still got the new
safe harbor trophy to put on the wall in the copyright hunting lodge
next to the DMCA and Section 230.

The gall doesn’t end there, however. The DLC goes on to make this
threat of imminent harm:

[The “deal”] is a crucial point for the Office to keep in mind as it
crafts rules in this space. If the regulations make it less likely
that a DMP will be able to rely on that liability protection when
it needs it—i.e., if it increases the risk that a court would deem a
DMP to not have complied with the requirements in section
115(d)(10)—a DMP could make the rational choice to forego the
payment of accrued royalties entirely, and save that money to
use in defending itself against any infringement suits.

It is a bit odd that the DLC seems to think of Title I as their private
contract, but there it is. The DLC members’ anticipatory repudiation
of the purported deal that the world now knows underpins Title I was
both refreshingly brazen and starkly shocking. Given that the Eight
Mile Style
case against DLC member Spotify (and both Spotify and
The MLC’s vendor the Harry Fox Agency) is a live action, the DLC is
not making an idle threat. The DLC tells us that if its market cap isn’t quite high enough to suit, Spotify could immediately dip into the black
box for “money to use in defending itself.”

The relationship with the services apparently has settled into the
customary laying about with threats and blackguarding both
songwriters and the Copyright Office. That’s reassuring in confirming
that human nature hasn’t actually changed and these companies really
were the Data Lords we had always known our betters to be after all,
sure as boots.17 Maybe one day the scorpion really won’t sting the frog.
Maybe another “unity dinner” is in order. But not today.

Regardless, it is clear that the Copyright Office is almost the only place
that songwriters can go for relief and an explanation of how the MMA
is to be implemented whatever secret deal the DLC now purports to
have made. Given the DLC’s unequivocal threat on behalf of its
members, there is no doubt of the imminent danger that the black
box currently being held is about to vanish into thin air if something
isn’t done immediately to preserve the status quo. The balance of
hardships pretty clearly tilts in favor of the songwriters as the safe
harbor services control the money and always have.

MediaNet Trying to Cut Off Black Box Payments

You can’t say these people aren’t cagey. Remember that one of the big selling points for the Music Modernization Act was that in return for the under-reported reach back safe harbor, songwriters would get paid on “black box” income by each digital music service dating back to the inception of each service. This is what the Copyright Office wants, too, unsurprisingly since that was the deal.

The reach back safe harbor was used as a scare tactic to keep songwriters from filing infringement lawsuits against these services and the MMA’s promoters went right along with it.

But–now that the bill is about to come due, guess who wants to change the deal? Services are beginning to threaten to decline the reach back safe harbor (and with it the blanket license, presumably) if they have to treat songwriters fairly on the black box. Instead of the MMA free ride that was handed to them on a silver platter, they now want to leverage the scare tactic and run out the clock on the statute of limitations that they will no doubt say had been running. That way they’d create their own safe harbor and never pay the black box but still try to use the blanket license.

So everyone should sue all of these loathsome people today and toll that statute. If enough of these services want to play hardball, there’s a real question of why bother having the blanket license at all.

Here’s an excerpt from MediaNet’s “ex parte” letter posted today:

We understand that the Office is contemplating that the cumulative report will provide data on unmatched usage back to the launch of the service. MediaNet, however, launched its service nearly 20 years ago. In light of that, and the change in vendors, we are requesting the Office adopt a narrow exception in the cumulative reporting regulations. We think such a regulation would be consistent with the overall statutory scheme. Notably, the statute references reporting pursuant to the “applicable regulations,” when discussing the information that must be provided to the MLC. That is a reference to the pre-existing reporting regulations. Significantly, those regulations provided that documentation related to royalties and usage for a particular period of time needed to be preserved only for a period of five years.

To be clear, MediaNet is not asking the Office adopt a regulation that allows a digital music provider to exclude all data from periods of time more than five years prior to license availability date (though such a rule would be consistent with the statute). Instead it is seeking a narrower provision that will provides all available data to the MLC. This would be in the form of a new paragraph in 37 C.F.R. § 210.20(c)(4) of the proposed rule:

(iii) The digital music provider shall be excused from providing the information set forth in paragraphs (i) and (ii) where the usage is from a period of time more than five years prior to license availability date, and the digital music provider certifies the following: that the information was solely held by a vendor with whom the digital music provider no longer has a business relationship, the digital music provider has requested that information from such vendor, and the vendor has informed the digital music provider that it cannot or will not provide that information.

Absent this narrow exception, MediaNet may decline to take advantage of the limitation on liability, which may deprive copyright owners of additional accrued royalties.

Future of Music Coalition Warns Against Vendor Lock-in in Copyright Office Comments

[The Future of Music Coalition joins the chorus of concern about shenanigans at The MLC, Inc. with special access and treatment of its vendors regarding the “public” database. As others have pointed out, there’s a real question as to whether The MLC, Inc. is actually building its own database or is just building up the data muscle of its vendor the Harry Fox Agency (formerly owned by MLC promoter and nonvoting board member NMPA. The MLC is prohibited by law from licensing other than the narrow window of streaming mechanicals, but HFA is not.]

[I]t’s important that MLC’s chosen vendors not be able to leverage their
status with the MLC to advantage themselves in other business activities not covered under the MMA. If a vendor was able to leverage its status with MLC to the detriment of competitors in other kinds of licensing activity (even informally), that wouldn’t serve competition, consumers, or creators. Additionally, the Office needs to ensure that provisions about database vendors being replaceable are meaningful.

We see no reason to expect that the MLC’s chosen vendors aren’t up to the task, but songwriters and composers need assurance that if a vendor ends up having problems and a change is necessary, that change will really be possible.

The Office can require the MLC to disclose what it is doing to prevent any vendor from being too operationally enmeshed with the MLC that it either enjoys an unfair advantage through that relationship, or that it would be practically impossible for another vendor to step in.

Read the entire post here.

Songwriters Guild and Society of Composers & Lyricists Copyright Office Comments on Database Ownership and Songwriter Credit in Public Database

[The Songwriters Guild of America and the Society of Composers & Lyricists filed a joint comment with the Copyright Office on proposed rules implementing the public database that The MLC, Inc. is charged with stewarding. They raise a host of issues, but also focus on the ownership issue raised by the Alliance of Recorded Music and the songwriter credit issue raised by Kerry Muzzey.]

Ownership of the Musical Works Database

As to the issue of “ownership” of the Musical Works Database, SGA and SCL were gratified by the USCO’s clear statement quoting the MMA that:
[w]hile the mechanical licensing collective must ‘establish and maintain a database containing information relating to musical works,’ the statute and legislative history emphasize that the database is meant to benefit the music industry overall and is not ‘owned’ by the collective itself. Under the statute, if the Copyright Office designates a new entity to be the mechanical licensing collective, the Office must ‘adopt regulations to govern the transfer of licenses, funds, records, data, and administrative responsibilities from the existing mechanical licensing collective to the public, either for free or at marginal cost, pursuant to the MMA.’

Nevertheless, we feel compelled to repeat once again the admonitions voiced by attorney Christian Castle in his recent submission to the USCO concerning practical issues, problems and anomalies that have arisen even prior to the commencement date of MLC public operations concerning the construction of the Musical Works Database:

I believe that The MLC is encouraging songwriters to correct their song data in the HFA database and that no data from HFA has been transferred to The MLC as yet, and may never be. If The MLC is having data corrected and filled out in the HFA database, then the rules applicable to vendor access to the database may not apply because the Congress’s musical works database is not actually being created at The MLC, it’s being created at HFA. Time will tell if I am correct about this, but it does seem that if I am correct, then The MLC and HFA are working together to exploit an imagined loophole in Title I that violates Congressional intent and certainly the spirit of MMA. Respectfully, the Office should find out what is going on.3

SGA and SCL believe that these are important questions of fact that require answers to ensure that data ownership issues are as clearly defined as possible in advance of any conflicts that may arise. Clarifying that (i) all data and corrections made through HFA will be mirrored in the Musical Works Database in real time, and (ii) that being compelled to provide data to HFA under color of authority from Title I does not constitute a license to HFA for any other purpose, will be important steps forward.

As we have also previously stated, the contractual role and authority of HFA (or any other vendor) should be subject to transparent scrutiny by all interested parties, includingthe music creators whose works are the subject of all information that resides in the database. That includes examination of the contractual rights of the vendor in regard to the data flowing through its own systems and/or those of the MLC, the ancillary vendor use rights (if any) of such data during both the pendency and post-expiration/termination periods of such contract(s), and the clarity of rights ownership of data by the MLC and successor iterations of the MLC (including as regards the Musical Works Database). We respectfully call on the USCO to address more robustly these important issues of transparency and data ownership, and ignore unsupported assertions that transparency and scrutiny of vendor relationships will invite inefficiencies as opposed to clarity and competition.

Songwriter and Composer Names in the Public Musical Works Database

As the USCO is aware and has recognized, SGA and SCL have been consistently outspoken concerning the fact that out of all pertinent identifiers for musical compositions, the names of the music creators of a work are among the only constant and unique data points. In all but the rarest of circumstances, such information is never subject to change, and therefore one of the most important and reliable elements necessary for accurate identification and matching of works.

Moreover, the extension of proper credit to human creators as part of this crucially important Musical Works Database –rather than simply limiting identifiers to the names of corporate assignees of rights which are frequently subject to change and termination– is both appropriate and essential to the fulfillment of the ideals and underpinnings of the MMA set forth in Article I, Section 8 of the US Constitution. As that section makes clear, copyright protections are first and foremost meant to serve the interests of the creators and the public, not the corporate entities that serve in an instrumental but secondary role as rights administrators.

We have therefore remained completely at a loss to understand why this crucial category of information was omitted from the MMA as a specifically required identifier (and why the music publishing community for some reason failed to support our efforts to correct that oversight), and are especially thankful that the USCO has put forth a proposed rule

that requires the MLC to include songwriter and composer information in the database. SGA and SCL continue to remain disquieted, however, with the additional qualifier added by the USCO concerning the standard to be applied by the MLC in seeking music creator data: “to the extent reasonably available to the collective.” Such a limited standard serves to diminish the requisite and explicit value of songwriter/composer identifying information.

We respectfully believe that music creator information should be more clearly defined as a mandatory data point required to be pursued for inclusion in the database by the MLC with vigor, and suggest once again that the rulemaking more specifically reflect the imperative nature of this duty. A more appropriate standard would be, in our view: “to the extent available to the collective through its best efforts to secure such data.” The avoidance of creating loopholes that may permit music publishers to omit music creator information from the data they voluntarily provide to the MLC is essential, and the independent community of songwriters and composers continues to seek the assistance of the USCO in this regard.

In respect to the foregoing, we desire to make clear that SGA and SCL also continue to support the rights of those music creators who may wish not to be publicly associated with certain musical works. That is and must continue to be right of any songwriter or composer. We therefore support the proposed rule put forth by the USCO that grants the MLC discretion to allow music creators the option of having songwriter/composer information listed anonymously or pseudonymously. We would, however, prefer that such a regulation be extended into a mandatory direction to the MLC to accept such direction from a music creator.

Read the whole comment here.

Copyright Office Comments by Composer @KerryMuzzey: Include Songwriter Credits in MLC Database

[Kerry Muzzey is an independent classical and film composer and artist rights advocate. In his comment to the Copyright Office on the MLC regulations he asks why songwriter names are not required to be included in the public database currently being stewarded by The MLC, Inc. Including songwriter names in the database seems like a fundamental building block of identifying a song–assuming that’s what you want to do. It would be like SoundExchange reporting not including an artist name in the transaction data. It makes no sense. Yet, it’s an issue as we will see.]

My name is Kerry Muzzey. I am an independent classical and film composer, and am self-published. It is crucial that the MLC database be searchable and completely public-facing, not only by song title but by writer’s name and publishing entity name or by ISWC or BMI/ASCAP IPI/CAE. Independent artists and music publishers must have the ability to search the “black box” of royalty collection, not only for unpaid royalties, but for accrued royalties that appear under a misspelling of an individual’s name, publishing entity, or in the event that a similar song title has resulted in the misattribution of the writer/publisher credit to another writer/publisher or artist. This transparency is essential not only for accurate accounting of royalties for an individual, but also for any works that are co-written, have multiple publishers, and/or whose performance rights are represented by multiple PROs. Any composer, songwriter or music publisher should have the ability to “disambiguate” their works from any other similar- or matching-title works or similar or identical writer names, by a simple error submission/correction process (after completing any necessary verification of identity). 

Read the entire comment here.

Copyright Office Comments of the Alliance for Recorded Music: Confirm the public owns the public database

[We’re continuing to post selections from the comments filed at the Copyright Office about implementation of the Music Modernization Act. There are a host of new regulations on the operation of the Mechanical Licensing Collective. It’s important to read up on these comments as they cover topics that simply are not covered by the mainstream music press. It’s the kind of thing that if you don’t make the effort to find out what is being said, the Copyright Office will make the new rules without you. Nothing sinister, it’s just how it works. You’ll wake up one day and find out your mechanical royalties haven’t been paid or the statutory mechanical royalty rate has been frozen for 14 years. A day like today.

There are a number of organizations and individuals–other than the usual suspects and conflicted parties–who are taking the time to comment extensively on the proposed new rules and you should know who they are and why they are concerned. We will select a few excerpts and link to the full filings so you can decide for yourselves. Because we believe that artists and songwriters should be told the truth.

The first issue is who owns the public’s musical works database. This is a vital question that has become strangely nuanced. We start with a great comment from the Alliance for Recorded Music represented here by Richard James Burgess of A2IM and Susan Chertkoff of RIAA.]

The Alliance for Recorded Music asks the Copyright Office to confirm who owns the public database in the temporary stewardship of the MLC, among other things in the full comment.

The Alliance for Recorded Music (“ARM”) is pleased to provide these Comments in response to the Notice of Proposed Rulemaking (“NPRM”) published by the Copyright Office (the “Office”) on September 17, 2020 regarding the public musical works database and transparency of the Mechanical Licensing Collective (“MLC”). See 85 Fed. Reg. 58170.

ARM is a nonprofit coalition that represents the recorded music industry in the United States, including the major record companies and more than 700 independently owned U.S. music labels. RIAA and A2IM are both members of ARM. The companies that ARM represents collectively create, manufacture, and/or distribute nearly all of the sound recordings commercially produced and distributed in the United States. As the creators, distributors, and copyright owners of most of the commercially valuable sound recordings available through the digital music providers (“DMPs”) intending to use the new blanket mechanical license, as payors of mechanical royalties and as potential users of the MLC’s musical work database, ARM’s members have a vested interest in the regulations that govern the MLC and its public database.

Database Ownership.

The NPRM makes clear that “the statute and legislative history emphasize that the database is meant to benefit the music industry overall and is not ‘owned’ by the collective itself.” 85 Fed. Reg. at 58172. It also notes that the MLC “agrees that the data in the public MLC musical works database is not owned by the MLC or its vendor.” Id. We agree with this view and were disappointed to find no corresponding clarification of this important concept in the proposed regulations. To avoid any future misunderstandings, and in the interest of consistency with the statute itself, we encourage the Office to make this point explicit in the regulations.

Read the full comment here

Bob Goodlatte: Supreme Court Could Take Intellectual Property Protections Back 50 Years in Google v. Oracle

[Really important opinion post by former House Judiciary Chairman Bob Goodlatte on Google’s attack on copyright in the vitally important Oracle case before the U.S. Supreme Court on Oct 7. Nice to see the Chairman back in the fight!]

Once or twice a generation, the Supreme Court agrees to hear a case so monumental, so groundbreaking in its potential to change the law, that it shapes Americans’ rights for years to come. These occasions are nothing short of paradigm-shifting, and the upcoming Supreme Court case Google v. Oracle is one of them.

On October 7, the Justices will hear oral arguments in this case, which many lawyers have referred to as the copyright case of the century. It will mark the first time the High Court rules on the copyrightability of software since Congress passed the Copyright Act of 1976—the law that governs the country’s entire copyright system. As such, it will set a crucial precedent for the future of copyright law and the United States’ economy in the digital age by either protecting IP from systematic domestic and foreign copying or offering these cases legal protection.

Google v. Oracle was initially filed nearly a decade ago after Google inquired about licensing portions of Oracle’s popular computer platform, Java, but elected to copy it instead. It then used the replicated code to build software for its mobile operating system, Android.

Read the post on Newsweek.